EURUSD

2016 EURUSD spent most of the year in mangled consolidation. It eventually fell by 3.18% in 2016 but this is entirely due to the Trump inspired general USD rally at the end of the year. It was exactly flat at its 2016 opening level of 108.63 on the morning after the Trump victory. Unusually it was the safest currency during the China crisis, rising nearly 5% in January, helped no doubt by a brief respite from the long-running Eurozone saga. After a brief spike above 1.16 in May, it slowly wound down, save for a spike up to 1.13 just before the election, the no-FBI moment, which seems like ancient history now.

2017 In some ways the Euro should be similar to 2016. Whereas before it was in a flat range, now those erratic moves should be downward grinding before a later reversal. Just imagine trying to force a ball further and further under water and then letting go. That should be 2017 EURUSD.

The Euro continues in an eight year downtrend from the 1.6038 high in 2008, in a similar fashion to the (synthetic) eight year downtrend from 1992 (the Pandora’s Box Analogy). Since this has begged a final new low beyond 1.0465 to complete the decline, the issue is whether this will prove to be a soft landing as we have theoretically already seen at 1.0340 or a more aggressive climax to an 0.8812 (5=1) target (but no further than a 75% unlikely 0.7833 Head and Shoulders target). The answer lies primarily with the level of volatility in the foreign exchange market in the first quarter of 2017 but the answer probably somewhere in between.
As both a similarity to the DXY Dollar Index’s first leg in 2009 and the latter stages of the 1999 Washington Gold template suggest an erratic overlapping declining wedge to an ideal 0.9665 (C=A) equality target, very similar in fact to the last gold decline in 2015. Failure then to sustain each successive new low will continue to provide a series of false dawns and a momentum loss that should wear bulls down to a point of submission and utter frustration for bears. It is this point ideally in a 0.96-0.98 range that EURUSD should reverse back through 1.08 to 1.1710 in the first leg of a new potentially aggressive uptrend probably in the second half of 2018.

USDJPY

2016 USDJPY’s small move down for the year of 2.67% belies a huge range. The pair had fallen consistently all year, to spike down to a low of 17.65% by Brexit date to just under 99¥. The Brexit recovery in all markets except GBP itself applied, and it made a quick recovery to 107¥, only to fall again to psychological parity. After climbing back slowly, the election produced a stunning 10.5% recovery by year end. (14.7% in a month from the immediate downspike to the December high).

2017 Within a 20-year 75-145 prolonged consolidation the 50 yen USDJPY rally following the 2011 earthquake should represent the first leg of another run at the 145 high. The 50% pullback to 99.10 is easily enough in distance to satisfy the correction. Although it is easy to believe the current impulsive recovery is a resumption of that uptrend, both our so far successful Earthquake template and a very similar impulsive recovery in 2000 suggest this could be the early stages of a prolonged consolidation in the 100-125 range. Indeed the longer USDJPY can stay below 125.80 then not only can we expect a return to 99.15 but potentially breaking down to 94.75 (61.8%) even 87.40 (76.4%) in a possible reflation inspired disconnect with the Nikkei. It is therefore only after a longer and/or deeper correction that we can see USDJPY break the 125.80 high.

GBPUSD

2016 Last year gave GBPUSD its worst year in a generation, falling by 16.3%. It followed all the markets in Q1, but had fully recovered its 6.5% dip by the time of the Brexit vote, and indeed put in 2016 highs in the early part of the vote week. The immediate effect of Brexit was an instant 12.5% crash. Unlike all other markets, GBP did not recover after Brexit and indeed faded further with the ‘fat finger’ crash on Oct 7th to briefly below 1.20, a level not seen since 1985.

2017 GBPUSD will remain dominated by an intermittent conflict between the UK’s decision to leave the European Union on June 23rd 2016 and the effects of a potentially inflationary Trump Presidency. Questions surrounding the possibility of maintaining access to the European single market and the timing of a soft or hard Brexit and even Donald Trump’s apparent support of the UK’s decision make the economic outlook uncertain. Indeed uncertainty about both Brexit and Trump are likely to remain the key drivers behind what we believe is the latter stages of GBPUSD’s downtrend.

In 2016 the downtrend took the form of downward shifting equilibrium ranges of 7-10 cents below the previous low with greater certainty over the Brexit process serving to depress GBPUSD and ironically, political uncertainty actually supporting the pound. In 2017 we expect this process to change in two ways as the downtrend matures. Firstly, the equilibrium ranges should start to expand as the downtrend loses momentum and two-way volatility builds.

Secondly a clearer outlook for the Brexit process should start to prompt rallies, an important early indication that Brexit (or possibly a general USD reversal) will ultimately create a major bottom and recovery for GBPUSD but probably not until at least the second half of 2017, if not 2018.

GBPUSD continues then in a combined Brexit-driven GBP downtrend and Trump driven USD uptrend to an ideal 1.16 (Fibonacci) target if not a retest of the historic 1.0350 lows. This weakness should ultimately not be sustained (as evidenced by a striking similarity between GBPUSD post ERM decline from 1992-2002 placing it around September 2009). As the decline matures, previous flat corrective consolidations should now take the form of expansions with at least two more new orthodox lows (1.1815/1.16) and at least one spike above the recent 1.2765 high. In this slowing and eventual bottoming reversal process we are still guided by the accurate Matrix Currency Fractal (3-month GBPUSD Forward leading now by around 43 days). This suggests a expansion in the first quarter of 2017 should produce a final spike down below 1.16 ideally 1.1380 but no further than the 1.0350 low probably around March 31st when Article 50 is invoked. This could well provide a classic ‘sell the rumour buy the fact’ reversal initially inspired by Brexit but later USD reversal taking GBPUSD back to a pre Brexit 1.39-1.50 range.

EURGBP

2016 The story of the year with EURGBP is of course Brexit. The cross gained 15.69% in 2016, but EUR was strong during the China worries, and the GBP was weak after Brexit. This produced a smoother appreciation than most other currencies. The pair reached a high of 0.93 before EUR was affected more than GBP by Trump to finish the year at 0.8526

2017 EURGBP continues in a longer term uptrend and probably a closer measure of the UK’s Brexit process than the now Trump-hijacked GBPUSD.

Having completed a potential seven year downtrend from 0.9800 to 0.6945 the current impulsive recovery (following similar price action to the UK’s exit from the ERM in 1992) has potential to make new highs to a 1.0577 equality target, probably in the run up to actual cessation of UK’s EU membership and therefore probably not until 2018. Until then we remain guided by the remarkably accurate Matrix Currency Fractal (3 month EURGBP forward) that discounted the Leave scenario when the referendum was called in February 2016. Now with a lead of 246 days this suggests a period of 0.82-0.93 consolidation at least for the first quarter of 2017. This forms part of a correction to the 0.6945-0.9345 rally. Until EURGBP is able to break 0.9345 then and open up the 0.9800 high there is scope for a wrong footing spike down to 0.8110 to complete the correction possibly after Article 50 is invoked on March 31st 2017. We suspect a large part of a 0.9345-1.05 EURGBP rally later in the year will be driven as much if not more by EUR strength rather than GBP strength.

USDCAD

2016 USDCAD is of course an oil proxy, and the pair tracked oil down dropping 10% by first week in May. It then climbed back with oil, and like some other instruments, but the strong dollar prevented full parity, and the pair closed the year down 2.84%.

2017 USDCAD remains in an obvious and relatively broad 0.90-1.60 long term range driven partly, and very topically, by oil (The Canadian economy is more reliant on oil exports than the nominal 3% of GDP) and more so when the commodity hits extremes. But historically USDCAD is more influenced by varying central bank policies (previously currency management but now interest rates) to manage a stable economic relationship with the US. Fluctuations may seem extreme at times but they always revert to the equally obvious 1.00 parity equilibrium point (Regression to Mean).

The rally to 1.4680 has completed one such fluctuation and has therefore started a new downtrend back to parity. The decline to 1.2460 (driven by the Oil recovery) is therefore the first leg of this new decline and the subsequent slow upward ratchet clearly corrective. However, until Oil clears 62.60 in a potential acceleration there is still scope for a US interest rate driven recovery to 1.3830 (61.8%) in the first quarter of 2017 and even spike above 1.40 but certainly not 1.4680 before USDCAD breaks down through 1.2460 to 1.00.

AUDUSD

2016 AUDUSD fell a mere 1.18% to finish the year at around $0.72, however, the Q1 China crisis caused a 6.3% drop, to a near 5-year low of 0.6825. Three months later it had put on 12.8%, gave up half of this in a month, recovered to near-highs in November on the copper price, but eventually capitulated to the post-Trump strong USD and weak gold.

2017 AUDUSD is in the middle of a 15 year 0.4770-1.1075 range. Having completed a potential correction at 1.1075 in 2011 it remains within a downtrend at least to retest the 0.4770 lows. Indeed the acceleration through the pivotal 0.84 region in 2015 suggests this will now cap, even as the downtrend slows as it approaches the important 0.6000 secondary low. This slowing is currently taking the form of an expansion from the 0.6890 September 2015 low. This is similar in some ways to the 2011-2013 top but expanding to reflect a downtrend still with volatility but a growing momentum loss. This expansion has called for a series of unsustained new highs and lows in 2017 before it can reach the interim 0.6000 target. The current downswing from the recent 0.7830 highs therefore has potential for another new low to an ideal 0.6660 but not reaching 0.6000, before the final leg in the upswing through 0.7830 to 0.8160. Only then should AUDUSD reach 0.6000 in what should ultimately prove to be a bearish 0.60-0.84 range. On the face of it, an extraordinarily difficult market but with the knowledge of an expansion and unsustained often violent moves, a cynical approach should still pay dividends.